1. Keeping an eye on mortgaged investors
The latest CoreLogic Buyer Classification data showed that first-home buyers remain a strong presence in the market, with around 26% of property purchases in September. By contrast, activity by relocating owner-occupiers (movers) is still a little quiet (25%) by past standards, but perhaps the group to keep an eye on is mortgaged multiple property owners.
That group has been edging higher in the past 4-5 months (rising to a 23% share in September), presumably driven at least in part by interest deductibility being back at 80% for all properties from April 1 (and 100% next April) and reduced deposit requirements from July 1. To be fair, mortgaged MPOs will still typically be topping up a new rental purchase quite significantly, but as interest rates fall that equation will start to look more favourable. On the flipside, the faster mortgage rates drop, the sooner the debt-to-income (DTI) ratio restrictions will become more binding. But new builds are exempt, so that’s where the focus could shift for more investors, with many in that game already.
2. Construction costs are still pretty flat
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The latest Cordell Construction Cost Index – which covers wages and the cost of materials (excluding land) – showed a 1.1% quarterly rise in a standard house-build in September (after a 1.1% fall in Q2), leaving the annual change at only 1.3%. It’s hardly surprising that costs have flattened out, given that the wider construction industry is still in the doldrums, amidst caution on the part of households and the weaker jobs market – not to mention lots of choice for buyers amongst the stock of existing listings.
That said, I’m just starting to hear whispers that a little more optimism is starting to re-emerge in the construction sector, and there are certainly some decent reasons to think 2025 could be better. Obviously, lower mortgage rates would be part of that story, but the DTIs could also encourage more demand for new-builds, giving developers a confidence boost.
CoreLogic chief economist Kelvin Davidson: "Mortgaged multiple property owners have been edging higher in the past 4-5 months." Photo / Peter Meecham
3. Inflation finally falls below 3%
Stats NZ reported last week that the headline inflation rate was 2.2% in the September quarter, down from 3.3% in Q2, and the first time in the 1-3% target range since early 2021. Most of the work has been done by tradable/imported factors (-1.6%), whereas the non-tradable/domestic side of the equation was still 4.9% – held up by continued growth in rents, council rates, and insurance premiums. All of this was broadly in line with expectations, so it might not change the Official Cash Rate outlook too much, with another 50 basis point cut still looking likely on November 27. But with non-tradable inflation at high levels, the Reserve Bank will continue to watch each piece of activity/price data as it comes to hand.
4. Banks continue to get a bit busier
On Thursday, the Reserve Bank will publish September’s mortgage lending figures, covering house purchase loans, top-ups, and bank switches. These numbers have been gradually rising for several months now – albeit from a low base – driven by more people buying houses, but also a willingness to jump across to a different bank (often for a cashback). These patterns are set to be repeated in September’s figures. There’s already been evidence of a quick response from investors to the deposit requirements falling from 35% to 30% (for existing properties) on July 1.
5. Economy still just bumbling along?
We’ll also get more real time economic data this week, including the NZ Activity Index for September on Wednesday and ANZ consumer confidence for October on Friday. Unfortunately, there seems a decent chance that these will continue the sluggish message of most indicators lately.
- Kelvin Davidson is chief economist at property insights firm CoreLogic
